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Regulatory Sanctions

Firm Caught for Lax Supervision Over Research Analysts

June 11, 2018

by Howard Haykin


An Albany, NY-based broker-dealer agreed to settle FINRA charges that it failed to enforce procedures regarding the distribution of research between the firm’s research and its trading and sales personnel, and failed to adequately supervise the process by which the firm distributed research reports to customers. The firm, which had no relevant disciplinary history, will pay $75K.


FINRA FINDINGS.    For most of 2014, the firm employed some 5 research analysts who covered approximately 80 subject companies. And the conduct of those analysts and their supervisory personnel were governed by policies and procedures ("WSPs"), which restricted the improper distribution of information the research department.


Yet, research was improperly disseminated between research analysts and the firm's trading and sales personnel. And finalized research reports were improperly distributed to customers. And, in doing so, the firm violated NASD Rule 3010 and FINRA Rules 5280 and 2010.


During the relevant period, ... 


  • While the firm’s WSPs prohibited research analysts from "discussing pending research reports with trading personnel prior to public dissemination,” research personnel routinely sent finalized copies of research reports to sales and trading personnel at the Firm before disseminating the research via its internet research distribution platform.


'Finalized Research Reports' were reports that the Firm had completed but not yet disseminated via the Firm's internet research distribution platform.


  • Even though the firm’s WSPs required that research be "distributed to all accounts and other recipients at the same time," the research department routinely sent finalized research reports to the Firm's trading and sales personnel who, in turn, emailed the reports to certain of the Firm's customers, chosen based on their determinations about which customers were likely to be interested in receiving the reports.


Consequently, the firm failed to prevent pending research reports from being distributed to some of its customers before others received the reports via the Firm's internet research distribution platform.


FINRA Rule 5280 requires a member firm to establish, maintain and enforce policies and procedures that are reasonably designed to restrict the flow of information between research department and trading personnel "so as to prevent trading personnel from using non-public advance knowledge of the issuance or content of a research report for the benefit of the member or any other person."


This case was reported in FINRA Disciplinary Actions for March 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2014039030201.